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GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: Good evening. In the life of all free nations, there come moments that decide the direction of a country and reveal the character of its people.

We are now at such a moment. In Iraq, an ally of the United States is fighting for its survival.

Terrorists and extremists who are at war with us around the world are seeking to topple Iraq's government, dominate the region and attack us here at home.

If Iraq's young democracy can turn back these enemies, it will mean a more hopeful Middle East and a more secure America. This ally has placed its trust in the United States.

And, tonight, our moral and strategic imperatives are one: We must help Iraq defeat those who threaten its future and also threaten ours.

Eight months ago, we adopted a new strategy to meet that objective, including a surge in U.S. forces that reached full strength in June.

This week, General David Petraeus and Ambassador Ryan Crocker testified before Congress about how that strategy is progressing. In their testimony, these men made clear that our challenge in Iraq is formidable.

Yet, they concluded that conditions in Iraq are improving; that we are seizing the initiative from the enemy; and that the troop surge is working.

The premise of our strategy is that securing the Iraqi population is the foundation for all other progress.

For Iraqis to bridge sectarian divides, they need to feel safe in their homes and neighborhoods.

For lasting reconciliation to take root, Iraqis must feel confident that they do not need sectarian gangs for security.

The goal of the surge is to provide that security and to help prepare Iraqi forces to maintain it.

As I will explain tonight, our success in meeting these objectives now allows us to begin bringing some of our troops home.

Since the surge was announced in January, it has moved through several phases.

First was the flow of additional troops into Iraq, especially Baghdad and Anbar province.

Once these forces were in place, our commanders launched a series of offensive operations to drive terrorists and militias out of their strongholds.

Finally, in areas that have been cleared, we are surging diplomatic and civilian resources to ensure that military progress is quickly followed up with real improvements in daily life.

Anbar province is a good example of how our strategy is working.

Last year, an intelligence report concluded that Anbar had been lost to Al Qaida. Some cited this report as evidence that we had failed in Iraq and should cut our losses and pull out.

Instead, we kept the pressure on the terrorists. The local people were suffering under the Taliban-like rule of Al Qaida, and they were sick of it. So they asked us for help.

To take advantage of this opportunity, I sent an additional 4,000 Marines to Anbar as part of the surge. Together, local sheiks, Iraqi forces, and coalition troops drove the terrorists from the capital of Ramadi and other population centers.

Today, a city where Al Qaida once planted its flag is beginning to return to normal. Anbar citizens who once feared beheading for talking to an American or Iraqi soldier now come forward to tell us where the terrorists are hiding. Young Sunnis who once joined the insurgency are now joining the army and police. And, with the help of our provincial reconstruction teams, new jobs are being created and local governments are meeting again.

These developments do not often make the headlines, but they do make a difference.

During my visit to Anbar on Labor Day, local Sunni leaders thanked me for America's support. They pledged they would never allow Al Qaida to return. And they told me they now see a place for their people in a democratic Iraq.

The changes in Anbar show all Iraqis what becomes possible when extremists are driven out. They show Al Qaida that it cannot count on popular support, even in a province its leaders once declared their home base. And they show the world that ordinary people in the Middle East want the same things for their children that we want for ours: a decent life and a peaceful future. In Anbar, the enemy remains active and deadly. Earlier today, one of the brave tribal sheiks who helped lead the revolt against Al Qaida was murdered.

In response, a fellow Sunni leader declared: "We are determined to strike back and continue our work."

And, as they do, they can count on the continued support of the United States.

Throughout Iraq, too many citizens are being killed by terrorists and death squads. And for most Iraqis, the quality of life is far from where it should be.

Yet General Petraeus and Ambassador Crocker report that the success in Anbar is beginning to be replicated in other parts of the country.

One year ago, much of Baghdad was under siege. Schools were closed, markets were shuttered and sectarian violence was spiraling out of control.

Today, most of Baghdad's neighborhoods are being patrolled by coalition and Iraqi forces who live among the people they protect. Many schools and markets are reopening. Citizens are coming forward with vital intelligence. Sectarian killings are down. And ordinary life is beginning to return.

One year ago, much of Diyala province was a sanctuary for Al Qaida and other extremist groups, and its capital of Baqouba was emerging as an Al Qaida stronghold.

Today, Baqouba is cleared. Diyala province is the site of a growing popular uprising against the extremists.

And some local tribes are working alongside coalition and Iraqi forces to clear out the enemy and reclaim their communities.

One year ago, Shia extremists and Iranian-backed militants were gaining strength and targeting Sunnis for assassination. Today, these groups are being broken up, and many of their leaders are being captured or killed.

These gains are a tribute to our military, they are a tribute to the courage of the Iraqi security forces, and they are the tribute to an Iraqi government that has decided to take on the extremists.

Now, the Iraqi government must bring the same determination to achieving reconciliation. This is an enormous undertaking after more than three decades of tyranny and division. The government has not met its own legislative benchmarks. And, in my meetings with Iraqi leaders, I have made it clear that they must.

Yet Iraq's national leaders are getting some things done. For example, they have passed a budget. They are sharing oil revenues with the provinces. They are allowing former Baathists to rejoin Iraq's military or receive government pensions. Local reconciliation is taking place. The key now is to link this progress in the provinces to progress in Baghdad.

As local politics change, so will national politics.

Our troops in Iraq are performing brilliantly. Along with Iraqi forces, they have captured or killed an average of more than 1,500 enemy fighters per month since January.

Yet, ultimately, the way forward depends on the ability of Iraqis to maintain security gains.

According to General Petraeus and a panel chaired by retired General Jim Jones, the Iraqi army is becoming more capable, although there is still a great deal of work to be done to improve the national police. Iraqi forces are receiving increased cooperation from local populations. And this is improving their ability to hold areas that have been cleared.

Because of this success, General Petraeus believes we have now reached the point where we can maintain our security gains with fewer American forces. He has recommended that we not replace about 2,200 Marines scheduled to leave Anbar province later this month.

In addition, he says it will soon be possible to bring home an Army combat brigade, for a total force reduction of 5,700 troops by Christmas.

And he expects that, by July, we will be able to reduce our troop levels in Iraq from 20 combat brigades to 15.

General Petraeus also recommends that in December we begin transitioning to the next phase of our strategy in Iraq.

As terrorists are defeated, civil society takes root, and the Iraqis assume more control over their own security, our mission in Iraq will evolve.

Over time, our troops will shift from leading operations, to partnering with Iraqi forces -- and eventually to overwatching those forces.

As this transition in our mission takes place, our troops will focus on a more limited set of tasks, including counterterrorism operations and training, equipping and supporting Iraqi forces.

I have consulted with the Joint Chiefs of Staff, other members of my national security team, Iraqi officials, and leaders of both parties in Congress.

I have benefited from their advice, and I have accepted General Petraeus's recommendations.

I have directed General Petraeus and Ambassador Crocker to update their joint campaign plan for Iraq, so we can adjust our military and civilian resources accordingly. I have also directed them to deliver another report to Congress in March. At that time, they will provide a fresh assessment of the situation in Iraq and of the troop levels and resources we need to meet our national security objectives.

The principle guiding my decisions on troop levels in Iraq is: return on success. The more successful we are, the more American troops can return home.

And, in all we do, I will ensure that our commanders on the ground have the troops and flexibility they need to defeat the enemy.

Americans want our country to be safe and our troops to begin coming home from Iraq.

Yet those of us who believe success in Iraq is essential to our security, and those who believe we should bring our troops home, have been at odds.

Now, because of the measure of success we are seeing in Iraq, we can begin seeing troops come home.

The way forward I have described tonight makes it possible, for the first time in years, for people who have been on opposite sides of this difficult debate to come together.

This vision for a reduced American presence also has the support of Iraqi leaders from all communities.

At the same time, they understand that their success will require U.S. political, economic and security engagement that extends beyond my presidency. These Iraqi leaders have asked for an enduring relationship with America. And we are ready to begin building that relationship, in a way that protects our interests in the region and requires many fewer American troops.

The success of a free Iraq is critical to the security of the United States.

A free Iraq will deny Al Qaida a safe haven.

A free Iraq will counter the destructive ambitions of Iran.

A free Iraq will marginalize extremists, unleash the talent of its people, and be an anchor of stability in the region.

A free Iraq will set an example for people across the Middle East.

A free Iraq will be our partner in the fight against terror, and that will make us safer here at home.

Realizing this vision will be difficult, but it is achievable. Our military commanders believe we can succeed. Our diplomats believe we can succeed. And for the safety of future generations of Americans, we must succeed. If we were to be driven out of Iraq, extremists of all strains would be emboldened. Al Qaida could gain new recruits and new sanctuaries.

Iran would benefit from the chaos and would be encouraged in its efforts to gain nuclear weapons and dominate the region. Extremists could control a key part of the global energy supply. Iraq could face a humanitarian nightmare. Democracy movements would be violently reversed. We would leave our children to face a far more dangerous world.

And as we saw on September the 11th, 2001, those dangers can reach our cities and kill our people.

Whatever political party you belong to, whatever your position on Iraq, we should be able to agree that America has a vital interest in preventing chaos and providing hope in the Middle East. We should be able to agree that we must defeat Al Qaida, counter Iran, help the Afghan government, work for peace in the holy land, and strengthen our military so we can prevail in the struggle against terrorists and extremists.

So tonight I want to speak to members of the United States Congress: Let us come together on a policy of strength in the Middle East.

I thank you for providing crucial funds and resources for our military. And I ask you to join me in supporting the recommendations General Petraeus has made and the troop levels he has asked for.

To the Iraqi people: You have voted for freedom, and now you are liberating your country from terrorists and death squads. You must demand that your leaders make the tough choices needed to achieve reconciliation. As you do, have confidence that America does not abandon our friends, and we will not abandon you.

To Iraq's neighbors who seek peace: The violent extremists who target Iraq are also targeting you. The best way to secure your interests and protect your own people is to stand with the people of Iraq.

That means using your economic and diplomatic leverage to strengthen the government in Baghdad. And it means the efforts by Iran and Syria to undermine that government must end.

To the international community: The success of a free Iraq matters to every civilized nation.

We thank the 36 nations who have troops on the ground in Iraq and the many others who are helping that young democracy. We encourage all nations to help, by implementing the international compact to revitalize Iraq's economy, by participating in the neighbors' conferences to boost cooperation and overcome differences in the region, and by supporting the new and expanded mission of the United Nations in Iraq. To our military personnel, intelligence officers, diplomats, and civilians on the front lines in Iraq: You have done everything America has asked of you. And the progress I have reported tonight is in large part because of your courage and hard effort. You are serving far from home. Our nation is grateful for your sacrifices, and the sacrifices of your families.

Earlier this year, I received an e-mail from the family of Army Specialist Brandon Stout of Michigan. Brandon volunteered for the National Guard and was killed while serving in Baghdad.

His family has suffered greatly. Yet in their sorrow, they see larger purpose. His wife, Audrey, says that Brandon felt called to serve and knew what he was fighting for.

And his parents, Tracy and Jeff, wrote me this: "We believe this is a war of good and evil and we must win -- even if it cost the life of our own son. Freedom is not free."

This country is blessed to have Americans like Brandon Stout, who make extraordinary sacrifices to keep us safe from harm.

They are doing so in a fight that is just and right and necessary. And now, it falls to us to finish the work they have begun.

Some say the gains we are making in Iraq come too late. They are mistaken. It is never too late to deal a blow to Al Qaida. It is never too late to advance freedom. And it is never too late to support our troops in a fight they can win.

SUZANNE MALVEAUX, CNN CORRESPONDENT: He did what he had to do. He delivered some good news with troop withdrawals, but he's setting the stage for the bad news that he's going to deliver tomorrow, that is the Iraq progress report to Congress -- 18 benchmarks, nine satisfactory, five unsatisfactory, four mixed. By any standards, a failure grade.

BLITZER: John Roberts?

JOHN ROBERTS, CNN CORRESPONDENT: Anyone who thought that this war was going to end by the time that President Bush left office, it was reaffirmed tonight that this is going to go on well beyond his presidency.

He said lower troop levels.

What does that mean? Nobody knows at this point. But I would expect that it's just going to embolden his critics, who want to try to get these troops out of there before the president leaves office.

BLITZER: John King, your thoughts?

JOHN KING, CNN CORRESPONDENT: Tonight the debate will be about is going to 130,000 by next summer enough. But by tomorrow and next week, the whole debate will be about can you come up with a bipartisan consensus in Congress to get from 130,000 to maybe 100,000 or 90,000.

BLITZER: The president clearly reaching out to Democrats tonight.

Let's get the Democratic response from Senator Jack Reed.

SEN. JACK REED (D), RHODE ISLAND: Good evening.

I'm Senator Jack Reed from Rhode Island and I was privileged to serve in the United States Army for 12 years.

I opposed the war in Iraq from the beginning. It was a flawed strategy that diverted attention and resources away from hunting down Osama bin Laden's terrorist network.

And since then, too often the president's Iraq policies have worsened America's security. Hundreds of billions have been spent. Our military is strained. Over 27,000 Americans have been wounded and over 3,700 of our best and brightest have been killed.

Tonight, a nation eager for change in Iraq heard the president speak about his plans for the future. But once again, the president failed to provide either a plan to successfully end the war or a convincing rationale to continue it.

The president rightfully invoked the valor of our troops in his speech, but his plan does not amount to real change. Soldiers take a solemn oath to protect our nation and we have a solemn responsibility to send them into battle only with clear and achievable missions.

Tonight, the president provided neither.

As a former Army officer, I know the great sacrifices our soldiers and their families make. Our military can defeat any foe on the battlefield. Yet as General Petraeus has repeatedly stated, Iraq's fundamental problems are not military, they are political.

The only way to create a lasting peace in Iraq is for Iraqi leaders to negotiate a settlement of their longstanding differences.

When the president launched the surge in January, he told us that its purpose was to provide Iraqi leaders with the time to make that political progress. But now, nine months into the surge, the president's own advisers tell us that Iraq's leaders have not and are not likely to do so. Meanwhile, thousands of brave Americans remain in the crossfire of another country's civil war.

So tonight we find ourselves at a critical moment.

Do we continue to heed the president's call that all Iraq needs is more time, more money and the indefinite presence of 130,000 American troops, the same number as nine months ago?

Or do we follow what's in our nation's best interests and redefine our mission in Iraq?

Democrats believe it is a time to change course. We think it's wrong the president tells us there's not enough money for our veterans and children's health care because he is spending $10 billion a month in Iraq. We have put forth a plan to responsibly and rapidly begin a reduction of our troops. Our proposal cannot erase the mistakes of the last four-and-a-half years, but we can chart a better way forward. That is why our plan focuses on counter-terrorism and training the Iraqi Army. It engages in diplomacy to bring the warring factions to the table and addresses regional issues that inflame the situation. It begins a responsible and rapid redeployment of our troops out of Iraq. And it returns our focus to those who seek to do us harm -- Al Qaeda and other terrorist groups.

An endless and unlimited military presence in Iraq is not an option. Democrats and Republicans in Congress, and throughout the nation, cannot and must not stand idly by while our interests throughout the world are undermined and our armed forces are stretched toward the breaking point. We intend to exercise our constitutional duties and profoundly change our military involvement in Iraq. We ask Americans of goodwill of whatever party to join us in this historic effort to restore the strength and security of the United States.

I urge the president to listen to the American people and work with Congress to start bringing our troops home and develop a new policy that is truly worthy of their sacrifices.

Thank you very much.

BLITZER: Democratic Senator Jack Reed with the Democratic Party's response to the president.

Let's go to a special edition of "LARRY KING LIVE" -- Larry.

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